Summary
Earning season is now over and we know the lay of the land for most of our portfolio companies. It’s been a truly awful year for growth and SaaS in particular. The days of large beats, dreamy QOQ numbers and acceleration are over, multiples have adjusted now to reflect that our companies will be growing in the 30-50% range vs 60-100%.
So I took my own advice and sold out of my SaaS companies for a period of time in November and got back in again. I am refining my strategy somewhat, I believe during this bear market, there are times to get in and out which is of course easier said than done, it feels like it’s going to be tough to hold gains in SaaS whilst revenue continues to decelerate. The time will come to hold and set and I do run the risk of missing a bit of that but I feel more comfortable with this approach.
My general view, formed by looking at analysis from macro bull and bears, as well of course company analysis, is suggesting that it’s going to get worse before it gets better, so I may look to move out again before earnings get really messy in the first half of 2023 but this week in particular may not give me that chance if Powell spooks the market again.
I also am trying a different approach by not going 100% SaaS. I want some balance so that my portfolio doesn’t get decimated whenever mr market decides SaaS is out of favour. I’ve seen the benefit of this in the past few weeks, with my non SaaS portfolio performing fairly well, and allowing me to pick off at it to buy SaaS again at silly prices, if the market throws gifts like that.
My background
Entrepreneur, ex-founder of SaaS & marketplace business, exited, now founder of horseplay.ventures, sendtrumpet.com, joinsequel.com angel investing & building other startups.Tweeting here:
https://twitter.com/andrewwebster11
Performance
2022 > -59%
2021 >21%
2020 > 209%
2019 > 41%
November 2022 -59%
Nov 2022 Portfolio
| SNOW | 18% |
|---|---|
| NET | 14% |
| S | 13% |
| DDOG | 11% |
| GTLB | 9% |
| BILL | 8% |
| TMDX | 7% |
| CELH | 7% |
| AEHR | 7% |
| ENPH | 6% |
SOLD
CRWD I sold out as part of my general move out of all SaaS in November, saw the earnings and have decided not to buy back. I had quite high hopes and plans to make them one of my biggest positions but they disappointed me in a big way. CRWD is a great company but there are too many key metrics heading south for now, so I’ll wait and potentially buy back in 2023 if the can reaccelerate and change the narrative like MDB just surprised us.
I have trimmed most of my companies to raise cash for other buys.
BUYS
GTLB
I really liked their earnings and again was in stark contrast to the negativity and struggles emanating from CRWD, DDOG and others. They have concrete plans to move to FCF positive in 2025, their guidance for 2023 was cautiously optimistic but they still feel like they are in the early innings of their S curve. It’s not ideal having github as a tough competitor but it feels like they have a fair chance of 50%+ revenue in 2023.
TMDX
Analogkid70 has been the leader on this one for a fair while so thank you for your persistence and superb research that you have shared with the board. Revenue acceleration, a niche/moat with very little competition, significant value proposition to hospitals which is disrupting an archaic process and several new products lined up that gives me confidence that hyper revenue growth can hold up in a recession.
AEHR
This brings me exposure to the EV/semi/data centre space. They have built testing products for silicon carbide and silicon photonics, new components that are rapidly being adopted by EV makers and edge computing data centres. This is a small cap and high risk play due to the lack of visibility in orders and revenue, it’s very lumpy and order dependent.
They have margins around the 50% mark, revenue in FY 2022 was $51m up 206%, and they are expected to hit $70m+ for FY 2023 although due to the way revenue comes in, they could beat this by a long way. This is a company and category which seems like it will continue to pick up pace even in a big recession year. They are the kind of companies I want exposure to considering how rough 2023 could be for SaaS.
This is a stock that has seen a big move into it from institutional investors, 4m shares being bought vs 900k sells, so a nice ratio. Very low SBC ration to revenue.
ENPH
A solar energy platform, significant tailwinds in the US & Europe. Hyper growth and very impressive cash flow and profitability. This is a growth stock delivering fantastic revenue and profitability metrics at scale during a recession. I want exposure to the move to solar energy so from my research, they seemed to be one of the best picks out there.
Apologies for the rough notes:
Dec 21 $412m 55% 17 qoq
Mar 22 $444 46% 7% qoq
June 22 $530 67% 19 qoq
Sep 22 $634 80% - 20qoq
Q4 - guide and a beat should hit $730m 14 QOQ
These are the kind of revenue growth numbers we’re accustomed to in SaaS yet they are also profitable. Margins are lower at 42%.
CELH
A company I’m not expecting to get much love here as its far away from the comfort of SaaS. This energy drink brand is taking on the likes of Redbull and Monster. Their revenue growth is stunning, they have 40% margins and very impressive growth to the bottom line. Pepsi has just made a strategic investment so the thesis centres around international growth and the distribution impact they could have, like Coke provided for Monster and the potential for a buy out down the line. Motley Fool did a very good write up on them recently if you follow Rules Breakers.
Q1 Revenue of $133.4 million, up 167%
Q2 Revenue of $154.0 million, up 137%
Q3 Revenue of $188.2 million, up 98%
They don’t guide and is another one where you have to get comfortable with the unpredictability.
It’s shareholder friendly, SBC accounts for 3% of revenue.
My companies
SNOW
Firstly, John Wayne, thank you very much for all the great research you’ve brought to the board. I share your conviction after earnings that they could have a strong year in 2023. The fact that management came out and underwrote next year with at least 50% growth is very reassuring. The focus on mega customers, the value they are creating in these tough times and the commentary management is sharing with us as shareholders, makes me want to hold these shares. The valuation however is the outlier, so its a strong buy whenever SaaS as a category comes under pressure.
NET
I wrote last month that earnings were a bit of a reset for this company. We should expect 35-45% growth next year. The thesis is intact and I can’t see many better long term companies to hold in the SaaS space, looking at the founders, products and category. However, the multiple is going to come under pressure again at some point so I want to take advantage of that.
S
A huge sigh of relief from everyone on this board this week, hey? They didn’t get punished even further which was a welcome change. Management for me came across fairly bullish despite this horrible economy. For me, the combination of delivering high revenue growth rates, I suspect they will do about 60% next year, and with the move to FCF positive and profitability, makes it a potentially explosive portfolio hold, IF they execute on what they’ve just told us. I don’t like the level of competition in this space, so because of that I will keep them a medium sized position and pray to the gods.
DDOG
I shared my concerns last month but they remain a world class SaaS/cloud operator with great operational leverage. Management/Directors having been buying shares at these low prices which is always great to see. I am fairly confident they will reaccelerate in the back half of 2023 so I want them a part of my long term plan.
BILL
BILL has me worried. Most of our companies are reporting softness in the SMB space, and I can see that only getting worse in 2023. However their earnings were fairly positive and they seem to be holding up nicely so far. This might be a position I sit out of in the future to see how the dust settles.
Others discussed above.
Watch List
My candidates are below:
NVDA - AI/data play
STEM - clean energy storage
Appreciation to those on the board who have persisted through these tough times, they keep sharing valuable analysis and research and will be rewarded in the long term.
Andrew
Previous updates
October 2022 - HorseplayAndrew Portfolio Review Oct 2022
July 2022 - HorsePlayAndrew Update July 2022 - Saul’s Investing Discussions - Motley Fool Community
June 2022 - HorsePlayAndrew Update June 2022 - Saul’s Investing Discussions - Motley Fool Community
April 2022 - HorsePlayAndrew Update April 2022 - Saul’s Investing Discussions - Motley Fool Community
March 2022 - HorsePlayAndrew Update March 2022 - Saul’s Investing Discussions - Motley Fool Community
Feb 2022 - HorsePlayAndrew Update Feb 2022 - Saul’s Investing Discussions - Motley Fool Community
January 2022 - HorsePlayAndrew Update Jan 2022 - Saul’s Investing Discussions - Motley Fool Community
December 2021
November 2021 HorsePlayAndrew Update November 2021 - Saul’s Investing Discussions - Motley Fool Community
October 2021 HorsePlayAndrew Update Oct 2021 - Saul’s Investing Discussions - Motley Fool Community
September 2021 HorsePlayAndrew Update Sep 2021 - Saul’s Investing Discussions - Motley Fool Community
August 2021 HorsePlayAndrew Update August 2021 - Saul’s Investing Discussions - Motley Fool Community
July 2021 HorsePlayAndrew Update July 2021 - Saul’s Investing Discussions - Motley Fool Community
June 2021 HorsePlayAndrew Update June 2021 - Saul’s Investing Discussions - Motley Fool Community
May 2021 - HorsePlayAndrew Update May 2021 - Saul’s Investing Discussions - Motley Fool Community
April 2021 - HorsePlayAndrew Update April 2021 - Saul’s Investing Discussions - Motley Fool Community
March 2021 - HorsePlayAndrew Update Mar 2021 - Saul’s Investing Discussions - Motley Fool Community
February 2021 - HorsePlayAndrew Update Feb 2021 - Saul’s Investing Discussions - Motley Fool Community
January 2021 - HorsePlayAndrew Update Jan 2021 - Saul’s Investing Discussions - Motley Fool Community
December 2020 - HorsePlayAndrew Update Dec 2020 from London, UK - Saul’s Investing Discussions - Motley Fool Community
November 2020 - https://boards.fool.com/horseplayandrew-update-nov-2020-from…
October 2020 - https://boards.fool.com/horseplayandrew-update-oct-2020-from…
September 2020 - https://boards.fool.com/portfolio-update-from-london-uk-sep-…